Harvard endowment value plummets $2.3bn after first negative returns since 2016 |  News |  The Harvard Crimson

Harvard endowment value plummets $2.3bn after first negative returns since 2016 | News | The Harvard Crimson

The value of Harvard University’s endowment fell $2.3 billion in fiscal 2022 after the Harvard Management Company posted a 1.8% loss on its investments – its first year of negative returns since 2016.

The losses, which brought the total value of the endowment to $50.9 billion, mark the third-worst annual investment results Harvard has seen in the past 20 years, in stark contrast to record returns of 33.6 % that the University benefited from last year.

The figures were released by Harvard on Thursday in the university’s annual financial report, which offers a rare insight into Harvard’s finances and investment strategy each October.

Harvard’s negative returns come as high inflation and rising interest rates continue to rattle financial markets. In a memo announcing the results, HMC CEO NP “Narv” Narvekar wrote that the primary reason for the endowment losses was “poor performance in global stock markets.” The S&P 500 fell 11% in fiscal year 2022, which ended in June.

Despite the losses, Harvard officials say they are satisfied with HMC’s performance. In a note included in the report, university treasurer Paul J. Finnegan and Harvard vice president of finance Thomas J. Hollister wrote that the returns were a “very good result given the significant declines in stock markets. and bonds over the past year. ”

Several of Harvard’s peer institutions also suffered staffing losses in the past fiscal year. MIT investments lost 5.3%, while Cornell posted a loss of 1.3%. Yale reported a slight positive return, at 0.8%.

The endowment distributed $2.1 billion to Harvard’s operating budget in fiscal year 2022, which represents 36% of the university’s annual revenue, according to the financial report. Harvard ended the fiscal year with a budget surplus of $406 million.

In his note included in the report, Narvekar announced that the Harvard Corporation – the university’s highest governing body – had approved a proposal that “will moderately increase ‘the risk level of HMC’s portfolio’ over a period of several years”. HMC formed a risk tolerance group in 2018 to assess how the endowment could take more risk in its investments while balancing the University’s need for fiscal stability.

“This increase will eventually make our risk level more consistent with that of various peers, although it will still be lower than some,” Narvekar wrote.

Last year, despite record totals, Harvard’s endowment performance lagged many of its peers, which Narvekar attributed to the “opportunity cost of taking less risk” than some other institutions.

HMC has significantly reduced its investments in non-renewable energy sources in recent years, which Narvekar says contributed slightly to its overall losses in fiscal 2022. Harvard has announced that it will let its remaining investments lapse in the fossil fuel industry and is committed to achieving net zero greenhouse gas emissions in its portfolio by 2050.

“A number of institutional investors have been looking into the conventional energy sector, either through stocks or commodity futures, adding significantly to their total return,” Narvekar wrote. “HMC did not participate in these returns given the University’s commitment to addressing the impacts of climate change, supporting sustainable solutions, and achieving our stated net zero goals.”

Unlike past practice, HMC did not publish a breakdown of endowment performance by asset class in the report. The change comes following a restructuring at HMC that shifted the vast majority of endowment assets to external managers, which “made simplified allocation reports increasingly arbitrary”, according to the holder. word of HMC, Patrick S. McKiernan.

“Individual investments may straddle multiple asset classes and HMC wants to avoid reporting with false precision,” McKiernan wrote in a statement.

HMC had previously maintained an in-house investment team while hiring outside managers to oversee parts of the endowment, an approach Narvekar phased out upon his arrival in 2016.

In his memo, Narvekar also warned that recently released figures may not reflect the actual current market value of some of the endowment’s assets. HMC’s venture capital investments returned “a strong figure” despite the “deeply negative performance of relevant public equity indices”, Narvekar wrote.

“The more private assets an investor had in their portfolio in FY22, the stronger their performance,” he wrote. “This is somewhat counterintuitive and may indicate that private managers have not yet marked their portfolios to reflect general market conditions. This phenomenon makes us cautious about forward-looking returns from private portfolios.”

In his closing remarks, Narvekar wrote that the contrast between HMC’s recent losses and its historic gains over the past year highlights the importance of focusing on long-term investment returns.

“We remain confident that the steps we have taken – and those that are still underway – to build a portfolio that serves the long-term interests of the University will enable Harvard to maintain and grow its essential support for students, teachers and research for generations to come,” Narvekar wrote.

—Editor Eric Yan can be reached at eric.yan@thecrimson.com. Follow him on Twitter @ericyan0.

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